Showdown Looms for ECB and Germans

The European Central Bank is primed for a debate this week over whether to use its printing press to save the euro, with Germany’s conservative central bank positioned to determine the course of Europe’s escalating debt crisis.

The showdown pits ECB President Mario Draghi, a veteran Italian central banker who has headed the ECB since November, against Jens Weidmann, the 44-year-old Bundesbank president. Last week, Mr. Draghi said the ECB would “do whatever it takes to preserve the euro.” The comments were viewed by investors as a signal that the central bank was poised to prop up government debt markets by buying vulnerable countries’ bonds en masse.

Such a move would be anathema to the Bundesbank, which argues that the purchases would risk violating the ECB charter’s ban on central-bank funding of government debt. Two senior German officials—the ECB’s former chief economist, and Mr. Weidmann’s predecessor as Bundesbank president—resigned last year in protest over the ECB’s previous interventions in government debt markets.

On paper, Mr. Draghi could overrule his German colleague because Mr. Weidmann has just one vote on the ECB’s 23-member council. But boxing the Bundesbank into a corner could undermine Mr. Draghi’s credibility in Europe’s largest country and main financial backer. Of particular concern to the ECB president, such a move could undermine support for the euro among a key constituency, the German public.

For Mr. Weidmann, the choice is whether to be marginalized by adhering to the Bundesbank’s rigid anti-inflation orthodoxy—which already led him to a series of ECB dissents—or bend to out-of-the-box thinking that many analysts see as necessary to stabilize crisis-prone financial markets.

“In the short to medium run, Mr. Draghi can afford to ignore” Mr. Weidmann, said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “In the long run, the central bank depends on support by the German public, and its views are formed by the skepticism of the Bundesbank.”